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IGCSE 1.1.5 The Mixed Economy
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Why might an economy that is purely a command / control economy be problematic?
Government allocates all resources - lack competition and not efficient / no incentive to innovate without profit incentive etc.
Explain how the mixed economy addresses the basic economic question of 'what to produce'
â—‹ Private sector: most goods â—‹ Public sector: public services and goods that private sector under-provides
Explain how the mixed economy addresses the basic economic question of 'for whom to produce'
â—‹ Private sector: for people who can afford it â—‹ Public sector: for all citizens / people in need
Outline TWO things that governments can do to tackle market failures.
Provide subsidies â—Ź Direct provision of goods and services â—Ź Legislation and regulations â—Ź Taxing the good â—Ź Education
Using an example, explain what is meant by non-rivalrous.
Non-rivalrous: one person consuming the public good does NOT reduce amount available to others
Using an example, explain what is meant by non-excludable.
Non-excludable: once the good is provided, it is very difficult to exclude an individual from consuming it
Explain why private sector organizations will not be willing to provide a public good like street lighting.
Free rider problem!
Define the free rider problem.
Free rider problem: individual who enjoys the benefit of a good but allow others to pay for it
Define merit goods and provide an example.
goods that are beneficial to society that are under-provided by private sector, e.g. healthcare and education
Provide TWO reasons why market failures occur.
â—Ź Externalities â—Ź Lack of competition â—Ź Lack of information â—Ź Missing markets:
Provide an argument for why most economies adopt a mixed economy as opposed to a truly free market economy.
Market failure: free market leads to inefficient allocation of resources.
Explain what is meant by the free market economy.
Vast majority of goods provided by private sector, with goods allocated based on market forces (i.e. supply and demand)
Outline TWO disadvantages of privatization.
Reduced quality of service, increased prices for customers, job losses, loss of public control, increased inequality
Outline TWO advantages of privatization.
Innovation, Increased efficiency, Reduced government spending, Reduced political influence
What is privatization?
Privatization refers to the transfer of ownership of a company from the public sector to the private sector.
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